Employment services firm Paychex, Inc. (PAYX) has an elevated P/E ratio of 26.36 but a solid dividend yield of 3.40%. The company is a leading payroll processing, human resources and benefits outsourcing provider for companies of all sizes. If the economy is strong, this company should benefit, but the stock has fallen into correction territory as the markets question economic stability.
Paychex stock closed Monday, Dec. 17, at $64.95, down 4.6% year to date and in correction territory at 14.6% below its Oct. 2 high of $76.02.
Analysts expect Paychex to report earnings per share of 63 cents when the company discloses results before the opening bell on Wednesday, Dec. 19. The employment services firm is expected to benefit from economic strength due to the lower tax rate. However, recent lower expectations question whether earnings will be strong enough for a positive share price reaction.
The daily chart for Paychex
Paychex had a bull market run of 28% from its March 27 low of $59.36 to its 2018 high of $76.02 set on Oct. 2. The company reported better-than-expected earnings that day, but the positive reaction was short lived. The first downside level was my quarterly pivot at $71.46, which failed to hold on Oct. 10. This is the middle horizontal line on the chart. The subsequent low of $62.89 was set on Oct. 29, below my annual pivot of $65.75. This is the lower horizontal line. These levels were strong magnets, with upside to $71.46 on Dec. 3 and then downside to $65.75 today ahead of earnings.
The weekly chart for Paychex
The weekly chart for Paychex is negative, with the stock below its five-week modified moving average of $67.47 but above its 200-week simple moving average of $58.56, which is the "reversion to the mean," last tested during the week of Dec. 23, 2011, when the average was $29.33. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 34.81 this week, down from 40.21 on Dec. 14.
Given these charts and analysis, investors should buy Paychex stock on weakness to its 200-week simple moving average of $58.56 and rising each week. My annual pivot should remain a magnet at $65.75. Investors should sell shares on strength to my quarterly risky level at $71.46.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.